GM cutbacks complicate USMCA's path to passage

December 10, 2018 12:00 AM

WASHINGTON — General Motors' decision to idle four U.S. assembly and parts plants could provide ammunition for critics of President Donald Trump's new North American trade agreement, which already faced headwinds to win approval from Congress.

After seizing control of the House in the midterm elections, Democrats are flexing their muscle and insisting on changes to the United States-Mexico-Canada Agreement — as the replacement for the North American Free Trade Agreement is called — in exchange for their support.

That could prolong the uncertainty for the auto industry, which would face higher costs under the deal but be able to mostly preserve existing cross-border supply chains. Getting it through Congress, experts say, will require horse-trading on multiple fronts.

Lawmakers will have an even starker choice if Trump follows through on his threat to withdraw from the original NAFTA.

"The worst outcome is no old NAFTA, no new NAFTA," said William Reinsch, an international trade expert at the Center for Strategic and International Studies. "Trump is putting [lawmakers] in that position. But they don't want to be blamed, including the Democrats, for sending this thing down the drain."

Help needed

Trump and his counterparts from Mexico and Canada signed USMCA Nov. 30 at the Group of 20 summit in Argentina. Although the deal eventually will be voted on in Congress under "fast track" rules that don't allow amendments, changes can be made until the White House sends the official package to Capitol Hill.

Trade deals aren't treaties, so they aren't ratified by the Senate. Instead, both chambers have 90 days to review and pass an implementing bill, which essentially validates the agreement and updates U.S. law to conform with it.

Trump, who has been at odds with many members of his own party over trade policy, will need help from across the aisle to pass USMCA. Some key Democrats, skeptical that higher auto rules of origin and a new minimum wage requirement in the agreement will be enough to discourage outsourcing, are threatening to vote "no" unless labor and environmental standards for Mexico are raised, giving U.S. manufacturers less incentive to move production.

BLOOMBERG

Dingell: "This GM announcement gives me greater concern, not less."

In a phone interview, Rep. Debbie Dingell, D-Mich., said GM's decision to idle U.S. plants, on top of the decision this year to produce the revived Chevrolet Blazer crossover in Mexico, reinforces a belief that USMCA doesn't correct NAFTA's problems.

"Before I approve any trade agreement I am going to make sure we're writing trade agreements that level the playing field for the working men and women of this country, and that we're keeping jobs here, not making it easier to keep shipping jobs overseas," said Dingell, a former GM executive. "This GM announcement gives me greater concern, not less."

Sticking points

Congressional Democrats, who are focused on containing job losses and improving wages in manufacturing, are laying down markers for what the United States-Mexico-Canada Agreement should include to gain their support. Their key arguments are:

Stricter 75% threshold for regional content to be duty-free doesn't prevent manufacturing flight to Mexico.

Labor-value content provision won't change supply chains because most automakers already comply.

Potential rise in Mexican minimum wage won't sufficiently close gap with U.S. wages.

Mexican workers lack adequate labor protections and collective-bargaining power.

Veteran Capitol Hill observers said USMCA opponents will use any argument they can, but doubted GM's action will affect votes.

The challenge will be persuading Mexico and Canada to go along with changes, because those countries would worry about opening the door for the U.S. to keep coming back for concessions, said Eric Miller, president of the Rideau Potomac Strategy Group.

"Figuring out how to square that circle will be important," he said.

Democrats and Trump, he added, have an interest in appearing reasonable in their demands. "This is kind of like 'Goldilocks and the Three Bears,' " he said. "Whatever the Democrats come forward with, they are going to have to make sure it's just right. It can't be too much, and it can't be too little."

U.S. Trade Representative Robert Lighthizer, who led the administration's hard-line position in NAFTA negotiations and now leads U.S. trade talks with China, should be able to get more out of the Mexicans on labor rights because the new Mexican government that took control Dec. 1 is to the left of its predecessor, Reinsch said.

"If Trump wants an agreement, he'll go to the pro-trade Republicans and say, 'If you don't support it there will be nothing because I'm withdrawing' " from NAFTA, the former head of the National Foreign Trade Council said.

"And then he'll go to the anti-trade Republicans and say, 'I'm giving you cover. Nobody is going to be more protectionist than me. You can vote for this and I'll tell your base that it's a good agreement. You voted for Donald Trump's NAFTA, not the bad old NAFTA.' "

Key players

Despite the political rhetoric, Democrats are inclined to favor USMCA, trade analysts said, though that doesn't guarantee approval.

Incoming House Democrats have latent positive views on trade, according to a preliminary analysis by the Center for Strategic and International Studies. Polling data also show that two-thirds of the Democratic base likes free trade, which makes sense because its core is young people and minorities who are more likely to accept globalization, Reinsch said.

REUTERS

The new trade deal is signed, but will the U.S. Congress approve it?

Democrats have to pay attention to concerns from organized labor, and may have personal concerns about trade, but recognize they will irritate a lot of individual and businesses constituents if they vote against USMCA, he said.

Key Democratic players, besides incoming House Speaker Nancy Pelosi, will be Richard Neal of Massachusetts, a pragmatist considered open to a deal who will take over chairmanship of Ways and Means, as well as Earl Blumenauer of Oregon, Ron Kind of Wisconsin and New Jersey's Bill Pascrell who are jostling to lead the trade subcommittee. Blumenauer and Kind are pro-trade Democrats, while Pascrell has long been a skeptic of trade agreements.

Meanwhile, counting votes will be tougher for the White House because few House members have taken a consequential trade vote, Miller said.

The process will be messy and full of drama, but Reinsch and Miller predicted Congress will pass USMCA next summer.

Miller said the auto industry and other stakeholders also have a lot of work to do before then.

He said, "They are going to have to get out there and make sure that the latent support that many of these new members have for trade is actually converted into a vote for trade."